IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Nominal shocks in monopolistically competitive markets: An experiment

Listed author(s):
  • Davis, Douglas
  • Korenok, Oleg

A market experiment examines the capacity of price and information frictions to explain real responses to nominal price shocks. Results indicate that both price and information frictions impede the response to a nominal shock, as predicted by the standard dynamic adjustment models. Observed adjustment delays, however, far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0304393211001085
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 6 ()
Pages: 578-589

as
in new window

Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:578-589
DOI: 10.1016/j.jmoneco.2011.11.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2000. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 39-57, January.
  2. Dyer, Douglas & Kagel, John H & Levin, Dan, 1989. "A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis," Economic Journal, Royal Economic Society, vol. 99(394), pages 108-115, March.
  3. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  4. Klaus Adam, 2007. "Experimental Evidence on the Persistence of Output and Inflation," Economic Journal, Royal Economic Society, vol. 117(520), pages 603-636, 04.
  5. Lei, Vivian & Noussair, Charles N & Plott, Charles R, 2001. "Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality," Econometrica, Econometric Society, vol. 69(4), pages 831-859, July.
  6. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
  7. Wilson, Bart J., 1998. "Menu costs and nominal price friction: An experimental examination," Journal of Economic Behavior & Organization, Elsevier, vol. 35(3), pages 371-388, April.
  8. Williams, Arlington W, 1987. "The Formation of Price Forecasts in Experimental Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 1-18, February.
  9. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2002. "Stability of the Cournot process - experimental evidence," International Journal of Game Theory, Springer;Game Theory Society, vol. 31(1), pages 123-136.
  10. Ernst Fehr & Jean-Robert Tyran, 2008. "Limited Rationality and Strategic Interaction: The Impact of the Strategic Environment on Nominal Inertia," Econometrica, Econometric Society, vol. 76(2), pages 353-394, 03.
  11. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
  12. Marimon Ramon & Spear Stephen E. & Sunder Shyam, 1993. "Expectationally Driven Market Volatility: An Experimental Study," Journal of Economic Theory, Elsevier, vol. 61(1), pages 74-103, October.
  13. John Haltiwanger & Michael Waldman, 1989. "Limited Rationality and Strategic Complements: The Implications for Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 463-483.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  15. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-1151, September.
  16. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  17. Noussair, Charles & Plott, Charles & Riezman, Raymond, 2007. "Production, trade, prices, exchange rates and equilibration in large experimental economies," European Economic Review, Elsevier, vol. 51(1), pages 49-76, January.
  18. Davis, Douglas D. & Wilson, Bart J., 2005. "Differentiated product competition and the Antitrust Logit Model: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 57(1), pages 89-113, May.
  19. Heemeijer, Peter & Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan, 2009. "Price stability and volatility in markets with positive and negative expectations feedback: An experimental investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1052-1072, May.
  20. Noussair, C.N. & Plott, C. & Riezman, R., 2007. "Production, trade and exchange rates in large experimental economies," Other publications TiSEM 3bf683fe-0650-4e8a-8682-c, Tilburg University, School of Economics and Management.
  21. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
  22. Dejong, Douglas V. & Forsythe, Robert & Uecker, Wilfred C., 1988. "A note on the use of businessmen as subjects in sealed offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 9(1), pages 87-100, January.
  23. Garcia Gallego, Aurora, 1998. "Oligopoly experimentation of learning with simulated markets," Journal of Economic Behavior & Organization, Elsevier, vol. 35(3), pages 333-355, April.
  24. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
  25. repec:pit:wpaper:334 is not listed on IDEAS
  26. Garcia-Gallego, Aurora & Georgantzis, Nikolaos, 2001. "Multiproduct activity in an experimental differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 493-518, March.
  27. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:578-589. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.